Anyone who has tried to put together a 5,000-piece jigsaw puzzle knows that the
best way to carry out the task is to have an overall picture. Electric-car
venture Better Place LLC is a multi-dimensional and multi-layered puzzle whose
pieces are scattered all over the world.

Every few months, new pieces of
the puzzle appear somewhere in the world, and some of them raise eyebrows in the
motor-vehicle industry. That was the case with the announcement by HSBC Holding
plc, not known as a bank to make adventurous investments, that it would invest
$125 million in Better Place. That was also the case with the announcement of a
strategic partnership with the venture by General Electric Company.

More
than anything else, the Israeli business world is embarrassed and astonished by
the steady interest of Israel Corporation, a company known to be thoroughly
grounded in reality, to put its hands deep into its pockets to finance the
project’s costs, when the date of the return on investment is not
known.

It seems that one of the reasons for the lack of clarity is the
public’s tendency to attribute Better Place and its economic potential to the
electric-car market, a disputed and exotic product with four wheels and a
battery.

However, a much broader picture emerges from some of the
puzzle’s new pieces, which were put into place this month – a picture directly
related to the energy and electricityproduction market in China, the country
with the world’s largest economic growth potential.

The emerging picture
shows Better Place moving from the centerpiece to the side as a means for Israel
Corp., its main shareholder, to expand its global interests. Israel Corp. has
business interests and ambitions in China’s electricity market and other
industries.

China’s electric-car market is $15 billion On the public
side, in late April, Better Place announced a cooperation agreement with China’s
second-largest electricity utility, China Southern Power Grid Company Ltd., to
open a battery switch station and joint education center in Guangjou, a city of
10 million residents. The wording of the announcement was rather vague and not
particularly binding, mentioning the establishment of a joint training center
for electric cars to demonstrate the battery replacement system.

“The
Better Place-CSG agreement calls for the companies to jointly engage relevant
Chinese government bodies and other stakeholders, secure governmental policy
support and promote technical standards, where appropriate, to further
accelerate China’s rapidly growing, electric-car industry,” the statement
said.

Better Place and CSG are also “looking at the potential for a joint
commercial operation based on a switchable-battery, networkoperator model,” it
said.

With all due respect to letters of intent and pilot ventures of one
kind or another, the question of “where is the money?” remains unanswered. The
announcement with CSG does not mention any financial commitments or timetables
for implementation.

The money in this case is the $15.2 billion that the
Chinese government plans to invest in electric-car R&D and subsidies for
building infrastructures and purchases of electric cars.

Last year, the
Chinese government cited electric-car development as one of seven strategic
directions in its five-year plan to reduce the country’s dependence on oil
imports. Better Place’s new partner, CSG, is part of a consortium of 20
government companies set up to promote the electric car.

This consortium
includes two electricity utilities – China National Petroleum Corporation and
China National Petrochemical Corporation (Sinopec) – and several government car
and battery manufacturers. Like everything else in China, the consortium is
centrally controlled by a government committee.

Better Place’s hookup
with these huge companies, even through the back door, is a kind of business
networking that multinationals would sacrifice an arm and leg for.

For
example, the CSG agreement opens the door to China’s motor-vehicle industry’s
supply chain, which includes more than 100 vehicle manufacturers and countless
battery makers, spare-parts companies and electronic- systems
firms.

Better Place already has close ties with French carmaker Renault
SA, but it has limits and restrictions in the global market. For Better Place,
which wants to have independent and inexpensive supply sources for cars, the
Chinese supply chain is a bonanza.

Israel Corp. has a joint venture with
China’s Chery Automobile Company Co.

Ltd., Chery-Quantum LLC, which will
manufacture gasoline and electric cars.

China’s $60b.-$100b. smart grid
We are not ridiculing $15b., or even a thousandth of it, but the most
interesting aspect of CSG and the State Grid Corporation of China – and the
really big money – is not in electric cars or the motor-vehicle market, but in
the electricity market.

Here, too, there are two big pictures: one
titanic and the other gigantic. The titanic picture is the $60b.-$100b. that the
Chinese government plans to invest over the next nine years to upgrade obsolete
and inefficient grids to smart grids.

In contrast to many other
procurement sectors that are mostly open to domestic companies, the smart-grid
project is also, and mainly, open to Western companies with the relevant
technologies and knowhow.

Better Place happens to possess to important
and proprietary technology smart-grid links. One is the remote management of the
electric-car battery recharging points.

The other is technology that
enables use of unused car batteries as a power reserve that can operate in the
other direction; in other words, to recharge itself overnight, when the load on
the grid is low and electricity rates are cheaper, and generate power for the
grid during peak hours.

This is a unique field that becomes economically
feasible at the scale intended for the Chinese electric-car market, which will
include tens of millions of batteries. For Israel Corp., Better Place’s hook-up
with CSG’s grid and the Guangzhou government, and through them to the Chinese
energy consortium, creates an edge over not insubstantial business rivals, such
as General Electric and Siemens AG, which are investing heavily to participate
in the Chinese smart-grid program. These advantages could be realized in the
form of an exit by Better Place or its peripheral technologies.

The
really big picture: China’s electricity market The gigantic picture amounts to
tens of billions of dollars a year. It is China’s electricity shortage,
especially in southern China – CSG’s territory. China’s dizzying industrial
growth is accompanied by an insatiable hunger for electricity, and the gap
between demand and supply is widening.

Chinese sources estimate that
southern China, the country’s industrial heartland, will face a shortage of 6
gigawatts in electricity production this summer. This means rolling brownouts at
manufacturers, affecting both exports and the local population.

This is
one of China’s most burning issues, and it generates hundreds of billions of
dollars in potential business for multinationals that build and operate power
stations.

Israel Corp. is one such company, and it has marked the
industry for strategic development, investing in solar power, gas stations and
who knows what else.

However, this activity has mostly been limited to
Israel (through OPC Rotem Ltd.) and Peru (through Inkia Energy Ltd.) to date.
Better Place’s networking in China could be Israel Corp’s entry ticket to the
premier league.

Obviously, Israel Corp. isn’t the first to think this.
Warren Buffett has already hundreds of millions of dollars in Chinese electric-
car and battery manufacturer BYD Automobile Co. Ltd. and billions of dollars in
energy and electricity companies.

Sites Of Interest

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